Venue and Bankruptcy: Which Court do you file your case?

By Peter Bricks, an Atlanta bankruptcy attorney.

As a primarily Northern District of Georgia bankruptcy attorney, I know based on what county my client resides whether their case will be filed in either the Atlanta, Newnan, Gainesville or Rome courthouse. If the debtor does not reside in any of the counties assigned to the Northern District of Georgia, the case will therefore most likely be filled in either the Middle District of Georgia or the Southern District of Georgia.

This is because venue in a bankruptcy venue in a bankruptcy case is dictated by 11 USC 1408. That code section says “a case under title 11 may be commenced in the district court for the district—(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principle place of business, in the United States, or principal assets in the United States, of such person were located in any other district;

Therefore, while the vast majority of the time venue is based on the debtor’s primary residence, it can also be selected due to the debtor’s assets. If the majority of the debtor’s assets are located elsewhere from where the debtor actually resides, then venue is appropriate in that location as well.

One important point to mention about basing venue on residence is that it applies to where the debtor lived for the greater part of 91 days of the 180 days preceding filing. While that is usually where the debtor currently resides, it is not necessarily so.

A debtor who has recently moved will need to decide whether to wait and file at the new place of residence or file now where venue will be perhaps be even in a different state from the debtor’s new residence. This is importantly, particularly as the debtor must make the meeting of creditors appearance at the court that has venue. And should it be a Chapter 13 case, the debtor is likely to need to appear in court on more than one occasion; therefore, making more problematic the decision to not hold off the filing to establish new venue.

Peter Bricks is a member of the National Association of Consumer Bankruptcy Attorneys. He has bankruptcy attorney offices in Dunwoody, Cumming and Jonesboro, Georgia.

Post Discharge or Dismissal – Should I call my lawyer?

So I was sitting in a signing today with a client who had filed a Chapter 13 Bankruptcy a few years ago with another attorney and their case has dismissed because they could not make their payments. This js not an uncommon occurrence in any bankruptcy attorney’s practice however what was uncommon was the next thing we talked about: after dismissal, the client was contacted by a creditor who had been paid in full in the Chapter 13 who repossessed the car and forced the client to pay another payment to settle the account. The client never called his old lawyer and just made the payment.

This story is just one of a lot of stories we all see more and more rather it be from a dismissed Chapter 13 case or a discharged Chapter 7 or 13. Your bankruptcy may be over but you may still need your attorney’s help to protect you and know your rights.

Landlord and Tenant Issues in Bankruptcy, What happens when a Debtor is current in a Chapter 13?

The Phillips Law Offices practicing bankruptcy in Maryland, Massachusetts and Rhode Island

Chapter 13 cases are always a bit more complex when dealing with any issue that arises in comparison to Chapter 7 cases.  In Chapter 13 cases, lease agreements are dealt with in a much different way than in Chapter 7 cases.  However, unlike a Chapter 7 case, there are some core principles in a Chapter 13 case that do not change, whether the Debtor is current or behind, that must be followed and do not differ.

In a Chapter 13 case, the Debtor may assume or reject an unexpired lease of residential property anytime up to the confirmation of a Chapter 13 plan.  What does this mean?  The Debtor could have anywhere from 30 days to 60 months to either reject or assume the lease agreements.  Comparing this time frame to the Chapter 7 case, the Debtor only has 60 days to reject or assume.  Why such a difference in structure?  Each jurisdiction deals with confirmation of Chapter 13 plans differently.  In Maryland, the court schedules a confirmation hearing on a Chapter 13 plan within 60 days of the 341 meeting.  In Massachusetts, however, the court does not schedule a hearing regarding the Chapter 13 plan; instead, it could be months before a Trustee recommends confirmation to a court.  So you see with just these two jurisdictions, the deadline to reject or assume could differ greatly for the Debtor.

Therefore, a landlord needs to pay attention to the plans that the Debtor is filing.  Remember, a Debtor does not have to file just one plan.  Often Debtors file several plans in order to deal with amounts of arrears owed, priority tax amounts, etc.  Amounts owed to creditors often change on a plan because the Debtor may not be absolutely clear as to the correct amount until a creditor files a proof of claim.

If a Debtor rejects a lease agreement, the landlord should file a Motion for Relief of Stay and get possession of the property so as to minimize damages.  However, the landlord should also file a proof of claim with the amount due and owing on past due rent and for any unmitigated damages.  The Debtor will only have to pay a pro-rata portion of the past due rent and any other damages to the landlord.  The Debtor is no longer required to pay the terms of the full contract and any monetary damages listed in the proof of claim will be thrown in with the rest of the unsecured claims.

If a Debtor assumes a lease agreement, the landlord will look for the Debtor to provide adequate assurances that all defaults on rent payments will be cured or compensate the landlord for any financial loss resulting from the default.  The Debtor will also need to prove that there are adequate assurances of future performance of paying the rent on time and in full.

Debtors will often attempt to cure the past-due rent through the plan with all other unsecured claims.  The issue with this approach is that it is wrong.  A landlord has the right to object to any plan that does not provide for immediate cure of past due rents owed if the Debtor wants to assume the lease.  This raises the primary issue in these types of situations.

The Debtor is in a Bankruptcy case because he is financially challenged.  The real hope in going into a Chapter 13 case is that the Debtor will get some relief from some of the debt owed and will be able to pay certain debts in full on time each month as well as pay a plan payment that will account for the past due arrears on the debts that the Debtor wants to keep such as mortgages, car payments and rents.  The problem is that a Debtor, although experiencing some financial relief, does not have the ability to cure a large amount of rent payments prior to the confirmation of a plan.

How does one fix this cross roads?  I often work with the landlord if I am representing the Debtor, and vice versa if I am representing the landlord, by asking that the debt be considered a priority debt and the arrears be paid in full through the plan payments.  Some landlords can, and may, take this type of arrangement a step further pursuant to Title 11 by asking the court to require a wage garnishment of the Debtor’s pay for both the rent payments and a payment towards the arrears owed.  This seems like an extreme measure taken by the landlord; however, the Debtor often is on board with the wage garnishment because it is voluntary and it helps the Debtor stay current and reorganize.  Debtors often look for help in getting back on track with payments and staying current and this arrangement gives the Debtor one less thing to worry about.

Irrespective of what side I am on, I try to recommend a solution be worked out for either side if the Debtor really wants to stay in the rental property and if the landlord knows that Debtor is a good tenant.  Often if the burden of the unsecured debt is taken off the Debtor, the Debtor is able to cure past due rental payments and would be able to stay current, so for a landlord it is a good risk to take.

Bankruptcy and Returned Checks

There are many types of unsecured debt that can be included in a bankruptcy, such as credit card debt, medical bills, payday loans, signature loans, deficiencies on repossessed cars and foreclosed homes, old utility bills, old cell phone bills, etc. Many debtors inquire whether returned check fees can be included in the bankruptcy and discharged. These fees can be included in the bankruptcy and are dischargeable. The bankruptcy will eliminate that debt, and the debtor’s credit report should reflect that the debt has been charged off. The creditor can no longer contact the client or try to pursue a claim against the debtor in circuit court, file a lawsuit, and/or obtain a judgment against the debtor.

Just because the returned check fee has been discharged through the bankruptcy does not prevent the prosecuting attorney from pursuing a criminal case against the debtor in state court. This type of action cannot be prevented by the bankruptcy attorney, and the debtor should seek representation from a criminal law attorney in the event they are contacted by the prosecuting attorney. Because these actions are in two separate courts, they are completely separate actions. The bankruptcy cannot discharge the prosecuting attorney’s ability to bring an action against the debtor in criminal court. There are many instances where the prosecuting attorney does not become involved, but sometimes they wish to pursue an action based on their discretion. They may institute fines the debtor will be required to pay. These fines are also not discharged through bankruptcy, and a debtor must work with the prosecuting attorney’s office to discuss these issues. Again, this would be a separate issue from the bankruptcy, and the debtor would most likely want to speak to a criminal law attorney to discuss the debtor’s options immediately.

If you have any questions, please contact a St. Louis or St. Charles, Missouri bankruptcy attorney.

Bankruptcy and Businesses

Sometimes debtors have businesses they wish to retain through a bankruptcy proceeding or are self-employed. There is additional information these debtors will need to complete in order for the trustee to evaluate their case. When a debtor is in a Chapter 7 or Chapter 13 bankruptcy and they are self-employed, the debtor will need to include their self-employment information in the Statement of Financial Affairs portion of the petition. They will also need to include their income in Schedule I and include any business expenses in Schedule J. They will need to account for any income in the last six months for the means test and deduct any expenses that are related to their self-employment.

A debtor who owns a business will have to complete the same information so the trustee can determine how much income they have received, as well as how much they have spent on business related expenses. The difference between these two is considered their income for purposes of the means test and will also be used in Schedule I, J, and the Statement of Financial Affairs. If a debtor owns a business, they will need to fill out a supplemental form in the petition titled “Business Income and Expenses” which itemizes the income for the last 12 months and the individual expenses, such as utilities, maintenance, etc. They will also need to fill out a Business Case Questionnaire and send it to the trustee. This form asks for the name of the business, the description of the business, whether it is incorporated, the federal ID number, bank accounts for the business, tax returns, monthly budget, employees of the business, inventory, whether the business is cyclical (i.e. landscaping, snow removal, etc.), whether the business owns or leases office space and/or equipment, the insurance policies for the business, and whether they have business licenses, etc. The debtor is required to fill out this information sheet and provide it at the creditor meeting. The trustee will generally not conduct the creditor meeting without this information sheet. Additionally, any debtor conducting business will generally need to be put on the business docket for the creditor meeting. The debtor’s attorney will need to call the court to arrange any cases for the business docket.

If you live in Missouri or Illinois and you have any questions about bankruptcy and business, please contact a St. Louis or St. Charles bankruptcy attorney.

Creditor Contact With Debtors

During the initial consultation and while in the process of filing bankruptcy, debtors often inquire whether creditors can continue to contact them. Some debtors receive 30 or 40 phone calls per day and wish for the contact to cease. Before debtors actually file their case, the creditors can continue to contact them. If the debtors have retained an attorney to file bankruptcy but have not yet filed, the creditors can continue to contact them. The case is filed once all the paperwork has been prepared by the attorney, reviewed by the client, and submitted to the court. At that point, the debtors will receive a case number and their creditors should receive notice that a bankruptcy has been filed. It is illegal for creditors to continue to contact debtors once a case number has been obtained.

Additionally, debt collection agencies sometimes use methods to attempt to collect a debt that may be in violation of the law. If this occurs, a debtor may be eligible to receive sanctions from the creditor. It is a violation for creditors to contact people about debts they do not owe, continue to contact creditors after they have received notice of the bankruptcy, call debtors at work if they have indicated that it is not acceptable to receive phone calls, leave messages for debtors without identifying the company they work for or without identifying they are attempting to collect a debt, call friends and/or family members and disclose to them that you owe a debt, call before 8 am or after 9 pm, or threaten legal action, such as warrants and/or arrest, etc.

If you have experienced this conduct with creditors or need additional information, do not hesitate to contact a St. Louis or St. Charles bankruptcy attorney.

Vehicle Ownership Expense in the Means Test

Vehicle Ownership Expense in the Means Test

In a bankruptcy, the means test must be completed with the debtor’s last six months of income. If the debtor is over median for their household size, additional information must be provided in the means test to see if the debtor is still eligible to file a Chapter 7 bankruptcy based on certain expenses. If they are under abuse, they can file a Chapter 7. Otherwise, they must file a Chapter 13 bankruptcy. There are certain expenses that are automatically imputed for the debtor, and then there are other expenses the debtor will receive a credit for in the means test, such as mortgage, car payments, taxes they pay, health insurance, life insurance, security expenses (security systems, etc.), and telecommunication expenses, etc.

The means test allows for a vehicle ownership expense for a vehicle in the debtor’s name. Line 22A of the means test asks for the number of vehicles the debtor operates. Lines 23 and 24 ask for the number of vehicles for which there is an operating/lease expense. For a single bankruptcy, the debtor can only claim operating/ownership expenses for one vehicle. If the debtors are filing jointly, they can claim two vehicles. The operating/lease expense can only be claimed if there is a secured lien on the vehicle that the debtor is paying. If the debtor does not have a loan on the vehicle, they are not entitled to the $517.00 operating/lease deduction. The debtor is entitled, however, to a deduction for actual expenses they incur for the vehicle. For example, if the debtor spends $200 per month on the vehicle for oil changes and repairs, that amount can be used as a deduction in the means test. If the debtor does not have regular monthly expenses for the vehicle, they are not entitled to a deduction for a vehicle with no loan against it.

If you have questions, please contact a St. Louis or St. Charles bankruptcy attorney.

Court Adds Additional Requirement to Foreclose in Massachusetts

The Highest Court in Massachusetts has made foreclosure just a little bit more complex and difficult for lenders. More specifically, in June of this year, the Massachusetts Supreme Judicial Court in the case of Eaton v. Federal National Mortgage Association, held that a bank who seeks to foreclose against an owner of real estate in MA must have in its possession not only the original notarized mortgage, but now must also have the original notarized promissory note. These are two separate documents, and the paper trail required is now doubled, which clearly provides additional protection for consumers and burdens of standing for lenders seeking to effectuate its alleged rights to foreclose on a property. This additional requirement will now likely delay many foreclosures due to the fact that when loans are sold from one lender to another, many papers seem to get lost and even if the mortgage is present, the second document, the note, must also be present.

If a homeowner is going to defend against a foreclosure in Massachusetts, a good first step is to send a certified letter to the loan servicer demanding a certified copy of the original mortgage, and original note pursuant to the General Laws of Massachusetts, Chapter 244. While foreclosure law varies from state to state, the Massachusetts decision highlights an important universal rule; you can not take a home if you do not own the right to do so.  In simple terms, in order for a bank to foreclosure they must prove that the bank is entitled to receive the monthly mortgage payments, and simply the fact that a consumer was paying them is not enough, the Court will now require the proper paperwork to show ownership, or more succinctly, as it was recently put by Henry J. Sommer, supervising attorney at the Consumer Bankruptcy Assistance Project, “The basic fact, which I think is true anywhere, is that if you don’t own a mortgage and note, you don’t have a right to foreclose on somebody’s house,” he said. “That is really what this decision boils down to”.

One significant comment of caution when asserting the note defense is that this holding does not seem to be retroactive. By that, I mean to say that this will not help homeowners who have already been foreclosed upon or those in the process prior the June 22, 2012.  If however, a notice to foreclose has been received subsequent to the June 22 holding, the defense is not only valid but a must first line of defense against banks seeking to take a homeowner’s or investor’s real estate for lack of payment.

If you are facing a foreclosure action, your best bet is to immediately seek the counsel of an experienced debt relief attorney in your state.

Foreclosure, Short Sale, or Bankruptcy

In a struggling economy and a terrible housing market, many people have found themselves unable to continue making mortgage payments and unsure of where to turn next. With foreclosures on the rise, more people are considering short sales of their homes. Many people do not want to consider bankruptcy, but that may be the best option both immediately and forward looking.

A foreclosure sale is a forcible sale of the home by the bank or lender. The debtor will get notice of the sale and when he/she must vacate the premises. Foreclosed houses are often sold at greatly reduced prices by the bank to another individual. This helps the banks cut costs of maintaining the residence waiting for a buyer. The difference between the price of the note owed by the first debtor and the price the new owner purchased the house for is called a deficiency. There are a number of ways banks may handle deficiencies. The bank can go after the original debtor for the difference and will likely have a successful law suit if it goes that far. Large banks often do not go after insolvent individuals; however, they may sell the debt to another agency that will be more likely to pursue the amount owed. The bank may also settle for a portion of the deficiency. Or, the bank may charge off the debt entirely. When a debt is charged off, or forgiven, by any creditor that amount becomes taxable income to the debtor. Hypothetically, say the note is for $200,000 and the bank sells the home after foreclosure for $150,000 and writes off the rest. The debtor now has to claim an additional $50,000 in income the following tax year. In some cases this may change a debtor’s tax bracket, meaning they will pay more taxes on all income, including this amount. In many cases this results in owing the IRS a substantial sum of money.

The consequences of a short sale are virtually the same. A short sale is simply where a debtor convinces the bank to accept less than what is owed for the house. The deficiency amounts are handled the same way as a foreclosure. Many debtors turn to short sales as an alternative to foreclosures, thinking this is the better option for their credit. Many lenders still have waiting periods for to buy a home for homebuyers with a short sale or a foreclosure history.

For these reasons, and many more, it may be in the debtor’s best interest to file a bankruptcy instead of foreclosure or short sale. A home can be voluntarily surrendered in a bankruptcy. This option may offer the debtor the opportunity to work with the lender regarding the timing of the surrender. Most importantly, after filing for bankruptcy, the lender cannot go after the debtor for the deficiency amount. Further, the deficiency amount deemed discharged through a bankruptcy is not taxable income to the debtor so he/she will not have to worry about unwanted tax consequences in following years. Bankruptcy will also eliminate other debts at the same time and the debtor can get a completely fresh start.

If you have questions about this, or would like to set up a consultation, contact a St. Louis Bankruptcy Attorney Today.

Mortgages and Proof of Claims in a Chapter 13 Bankruptcy

A debtor’s mortgage is often at the center of the Chapter 13 Bankruptcy Plan. Any applicable arrears must be addressed through the plan. The debtor has a choice of whether to pay the ongoing mortgage through the plan or outside the plan. In either case, however, prior to changes in the Bankruptcy Procedure of December 2011, a debtor could be faced with a number of surprises upon or after completion of the plan. Debtors would often be informed of increased payments or fees assessed during the bankruptcy and told that they are due and owing immediately to remain current because the fees were not addressed by the plan. Increased fees could be due to a number of different reasons, including escrow issues or taxes.

Rule 3002.1(c) of the Bankruptcy code now requires that both the debtor and the debtor’s attorney be given notice of any post-petition fees within 180 days of the fees being incurred or assessed. If either the debtor or the trustee dispute that this amount is owed either party has one year to dispute the fees. If there is a dispute there will likely be a hearing on the matter to decide the issue. If the amount is not in dispute, the debtor should begin paying the increased or different fees immediately, either through the plan or in ongoing payments made outside the plan.

Another very important change in the rules is that within 30 days of completion of all plan payments the bankruptcy trustee must file a notice, served to the debtor, the debtor’s attorney, and secured claimants that all payments have been made and that all arrears, if applicable, have been cured. The claimant is required to respond with 21 days as to whether he/she agrees or disagrees with the trustee’s assessment. If a party is in violation of this rule, or any other of the new rule changes, he may be estopped from certain remedies and/or may be sanctioned. For example, if a mortgage lender does not respond whether he/she agrees that arrears have been cured, the court may not allow the party to later say that the arrears are not cured. Failure to comply with the rules can be very costly to the lender, a marked shift from the previous costly effects to the debtor.

If you have questions about this, or would like to schedule a free consultation, contact a St. Louis Bankruptcy Attorney Today.

www.lickerlawfirm.com

Vehicles and Bankruptcy

Many debtors contemplating filing for bankruptcy own a vehicle, whether owned out right or there is an existing car loan. There are a number of issues surrounding vehicles and filing for bankruptcy, but not to worry, an experienced attorney can navigate these issues and explain your options. The issues vary between Chapter 7 and Chapter 13 Bankruptcy, so I will give a brief overview of both.

The first issue, in either case, is that a debtor is entitled to keep up to $3,000 in equity in one vehicle. Equity can be explained as the amount of your interest not subject to a loan or secured claim. If you own a vehicle with no loan the equity is the value of the vehicle. If you own a car with a loan the equity is the difference between the amount the car is worth and what is owed on the vehicle. If you have too much equity in a vehicle you can pay this amount back to the trustee. Discuss this with your attorney, and he/she can advise you on the best course of action.

If you are behind on car payments, and intend to keep the vehicle, you will probably need to consider filing a Chapter 13 bankruptcy. If you are not current on car payments your car creditor can file a motion for relief, basically asking permission of the court to lift the automatic say and allow repossession of the vehicle. If you are behind on your payments in a Chapter 7 this motion will be granted. In a Chapter 13 the past due amount will be addressed by the repayment plan filed with the court.

When filing under either Chapter it is imperative to list your intention for the vehicle, whether it is to be surrendered or retained. If you choose to retain the vehicle you must list whether you intend to reaffirm or redeem the debt. Failure to comply with this requirement may have adverse effects, as recently in In re Mollison, 463 B.R 169 (Bankr. D. Mass 2012) a court held that a creditor could not be sanctioned for attempting to perfect a lien post petition because the statement of intent was not filed out property, thus ending the automatic stay 30 days after the 341 hearing, and meaning there was no violation of the automatic stay. The court also found that the trustee may still be able to avoid the lien. There are a few things to consider in light of this ruling. First, if the intent is not filed out the protection of the automatic stay ends prematurely potentially creating a number of unwanted consequences for the debtor. Further, in this case, the debtor listed the car as retained, but did not specify how he intended to retain the vehicle. Because the lien was not properly perfected pre-petition, and the court held that the trustee can challenge perfection of the lien, the debtor may lose the vehicle. If the lien is not perfected and the value of the vehicle is over the exemption amount the vehicle may become property of the bankruptcy estate to be distributed among creditors. It is imperative that both debtors and attorneys ensure compliance with the bankruptcy rules to avoid such consequences.

If you have questions about this, or would like to schedule a free consultation, contact a St. Louis Bankruptcy Attorney Today.

Requirement to List All Creditors When Filing for Bankruptcy

Commonly when a debtor considers filing for bankruptcy he/she thinks that if he/she could get rid of a particular debt, or group of debts, that the rest of the payments would be reasonably affordable. From this thought, debtors often want to list, or “file bankruptcy on some debts”. Commonly debtors want to exclude items that they wish to keep, such as a car or particular store credit card.

The bankruptcy code simply does not allow this type of preferential treatment. Any amount owed, no matter how insignificant or affordable it may seem, must be listed on the bankruptcy petition. A debtor is required to list the debt regardless of whether the debt is dischargeable. Further, the debtor is required to list the debt regardless of who the money is owed to. For example, if a debtor owes his/her family member money is must be listed, and the debt is legally discharged in a Chapter 7 Bankruptcy.

Unfortunately, there may be some adverse effects from listing debts. Certain utilities may charge deposits to turn service back on in a debtor’s name that has filed for bankruptcy. Credit card companies may cancel a card held in a debtor’s name that has filed for bankruptcy.

The bankruptcy code does allow preferential treatment to vehicles and mortgages, in that the debtor may opt to continue payments and keep the vehicle or house. Some creditors with security agreements on purchased items (i.e. Best Buy has a security interest in the credit agreement that the balance on the card is secured by the collateral purchased) may offer debtors the opportunity to reaffirm the debt to keep the collateral.

When given this advice some debtors want to pay off certain balances on credit cards, etc. to avoid the requirement of listing the debt on the schedules. The Bankruptcy Code discusses preferential treatment in a number of sections. Any payment of over $600 in the year leading up to bankruptcy must be disclosed on the bankruptcy petition. The trustee, at his/her discretion, may reverse any such payment. Basically, this means that the trustee will demand the money back from the creditor and take the money and distribute amongst all creditors. It is also important to note that a payment of any amount to a friend or family member must be disclosed on the petition. Failure to comply with requirements can have a number of consequences, including revocation of a discharge and criminal proceedings for fraud.

If you have questions about this, or would like to schedule a free consultation, contact a St. Louis Bankruptcy Attorney Today.

Can i have too much debt to file a Chapter 7?

One of the biggest myths is can i have too much debt to file a Chapter 7? Contrary to what some might think the answer is no. The Bankruptcy Code does not impose a limit on Chapter 7 debts because Congress intended for Chapter 7 to be a fresh start.

One word of caution though: significant amounts of credit card debt i.e. over $100,000.00 or large balance transfers can raise a red flag with the Chapter 7 Trustee or the Court. It is very important that you disclose all of your debts and more importantly the amount of debt to your attorney to ensure your Chapter 7 goes through the process smoothly.

Can I Have Too Much Debt to File Chapter 13 Bankruptcy?

By John M. Hilla, a Michigan Bankruptcy Attorney

Unlike in Chapter 7 bankruptcy, in which there are no limits to the amount of debt that may be discharged, in a Chapter 13 reorganization bankruptcy, it is possible to have “too much debt” to file a Chapter 13.

Under Section 109(e) of the US Bankruptcy Code, a debtor is, by definition, an individual with less than $360,475 in unsecured debt and less than $1,081,400 in secured debt in Chapter 13 bankruptcy. This means that, if you owe more than either of these limits (or both), you may not be eligible to file a Chapter 13 bankruptcy and would be required to file either a Chapter 7 bankruptcy, provided that you are eligible for that Chapter under the Means Test eligibility standard, or an individual Chapter 11 bankruptcy, which is the form of “reorganization” bankruptcy that is usually reserved for corporations and which, for individuals, is a complex and expensive process.

In other words, the question of whether a debt is “secured” or “unsecured” is vitally important in analyzing what form of bankruptcy is most appropriate for you.

“Secured” debt is just that: debt that is secured by collateral of some sort. An auto loan is a “secured” loan, for example, because the automobile that is being purchased also serves as collateral for the loan that is extended by the lender. If you default on your payments, the lender has the right to reclaim the collateral, or to repossess the car, in this case. A mortgage note is a personal loan secured by the collateral that is the house that is being purchased under the terms of the mortgage agreement. Some credit unions extend what would otherwise be unsecured personal loans by “cross-collateralizing” the loan, making the collateral for some other loan (a car loan, say) that they have extended to a customer also serve as collateral for the personal loan.

“Unsecured” debt is everything else: medical bills, credit card debt, personal loans from family members or friends, lines of credit (other than Home Equity Lines of Credit and other secured forms), and so on. These are debts that have no collateral: they were just loans extended, with the consequence of default being the collection lawsuit and other remedies for breach of contract as provided by your state’s law.

The trick in Chapter 13 for determining some finer points here lies in the classification of debt done by you and your attorney in preparing your petition and your Chapter 13 repayment plan. In a Chapter 13, a second mortgage or HELOC on a primary residence that is worth less than is owed on a first mortgage can usually be “stripped off” and treated, upon completion of the Plan, as unsecured debt—even though it is, by the terms of the contractual note providing the guidelines of the original loan, secured by collateral: the home in question.

So is that debt, upon the initial filing of the petition and Plan, an unsecured debt or a secured debt?

The answer is that it depends on the rulings made by the Bankruptcy Court in your local area. In the Eastern District of Michigan, where I practice, although I am regularly able to have such second mortgages stripped off and declared to be “unsecured” debt by my local Bankruptcy Court, such debts are classified as secured debt for initial filing purposes. The actual stripping of the lien (conversion to “unsecured” classification) does not occur until the end of the 3-5-year Chapter 13 payment Plan. If I, as a filing debtor’s attorney, were able to pick and choose which classification to give a debt upon filing. it would certainly make a difference from time to time as to the eligibility of a client for Chapter 13.

This practice and and these rules vary significantly from jurisdiction to jurisdiction around the country.

The bottom-line is that it is vitally important to seek out and retain an experienced bankruptcy attorney who is familiar with the analysis that is appropriate for your geographic area. In a Chapter 13 bankruptcy, especially, going it alone or with a non-specialist attorney, you can easily trip on such nuances.